GE to merge Baker Hughes to create a $30 bn oilfield services giant

GE and Baker Hughes today said that they have entered into an agreement to combine GE's oil and gas business and Baker Hughes to create the world's second-largest oilfield technology provider.

The merged entity will be a GE group company.

The combination of GE Oil & Gas and Baker Hughes will create the second-largest player in the oilfield services industry in terms of revenue after Schlumberger.

The ''New'' Baker Hughes will have dual headquarters in Houston, Texas and London, UK.

With a unique mix of service and equipment capabilities, the `New Baker Hughes' will have $32 billion in combined revenues and operations in more than 120 countries, a joint release stated.

''By drawing from GE technology expertise and Baker Hughes' capabilities in oilfield services, the new company will provide best-in-class physical and digital technology solutions for customer productivity,'' it added.

Under the terms of the agreement, which have been unanimously approved by the boards of both companies, GE will own 62.5 per cent of the merged company.

At the closing of the transaction, which is expected in mid 2017, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and 37.5 per cent of the new company.

''This transaction creates an industry leader, one that is ideally positioned to grow in any market. Oil & gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes,'' said Jeff Immelt, chairman and chief executive of GE. ''As we built the GE Oil & Gas business, I have always been impressed by the respect our customers have for Baker Hughes,'' he added.

Lorenzo Simonelli, president and CEO of GE Oil & Gas will be the CEO of the New Baker Hughes, while Jeff Immelt, CEO of GE will be chairman. Martin Craighead, chairman and CEO of Baker Hughes will become the vice chairman of the combined Baker Hughes board of directors

GE said investors will benefit through ownership of a stronger business with substantial synergies and an improved competitive position. ''The transaction is expected to add approximately $.04 to GE EPS in 2018, $.08 by 2020.''

''This compelling combination brings together best-in-class oilfield equipment manufacturing and services, and digital technology offerings for the benefit of all customers and stakeholders. The combination of our complementary assets will create a platform capable of seamless integration while we enhance our ability to deliver optimized and integrated solutions and increase touch points with our customers,'' Martin Craighead, Chairman and Chief Executive Officer at Baker Hughes said.

The deal comes after Baker Hughes's planned merger with bigger rival Halliburton fell through in May due to opposition from regulators (See: Halliburton, Baker Hughes terminate $34.6-bn merger over regulatory issues). That deal was valued at $34.6 billion when it was announced in November 2014. GE said both companies' employees will benefit significantly from being part of a larger, stronger company that is positioned for long-term growth. ''We look forward to combining the digital solutions and technology from the GE Store with the domain expertise of Baker Hughes and its culture of innovation in the oilfield services sector.''

With combined revenue of over $32 billion the product portfolio of GE Oil & Gas and Baker Hughes in drilling, completion, production and midstream / downstream equipment and services will create the second-largest player in the oilfield equipment and services industry.

Both companies have invested even in the downturn and have strong, complementary competitive scope across the industry. With GE's fullstream oil and gas manufacturing and technology solutions spanning across subsea and drilling, rotating equipment, imaging and sensing and the Baker Hughes portfolio in drilling and evaluation and completion and production, the combined company expects to move beyond oilfield services and into oil and gas productivity solutions.

The companies expect to generate total run-rate synergies of $1.6 billion by 2020, which has a net present value of $14 billion. ''While this is primarily driven by cost out, we believe that the new company is positioned for growth as the industry rebounds.''

GE said the transaction is expected to be accretive to its earnings per share by $.04 by 2018 and $.08 by 2020. This is another step in creating the premium digital industrial company.

The ''New'' Baker Hughes is expected to be the partner and employer of choice for the industry. Combination is an exceptional cultural fit. Both companies' employees will benefit significantly from being part of a larger, more diversified company.

The transaction will be executed using a partnership structure, pursuant to which GE Oil & Gas and Baker Hughes will each contribute their operating assets to a newly formed partnership. GE will have a 62.5 per cent interest in this partnership and existing Baker Hughes shareholders will have a 37.5-per cent interest through a newly NYSE listed corporation.

Baker Hughes shareholders will also receive a special one-time cash dividend of $17.50 per share at closing. The $7.4 billion contributed by GE to the new partnership will be used to fund the cash dividend to existing Baker Hughes shareholders.